Dunlop founded and directed his own young theatre company, The Piccolo Theatre in Manchester (1954), and directed The Enchanted at the Bristol Old Vic in 1955 where, a year later, he became its resident director, writing and staging Les Frere Jacques. He made his West End debut at the Adelphi Theatre in 1960 with a production of The Bishop's Bonfire.

He took over the helm at the Nottingham Playhouse from 1961–1964, including the inaugural season of the newly built theatre in 1963, and then directed several plays in London, Oklahoma and Edinburgh. In 1966 he founded The Pop Theatre Company at the Edinburgh Festival, with productions of The Winter's Tale (also seen in Venice and London) and The Trojan Women.

Dunlop also produced the theatrical production of Oblomov, based on the novel by Russian writer Ivan Goncharov. The play opened at London's Lyric Theatre on 6 October 1964, and starred Spike Milligan as Oblomov, and Joan Greenwood as his wife Olga. The play ran for a record-breaking five weeks at the Lyric, before being retitled Son of Oblomov and moved to the Comedy Theatre in London's West End, with Dunlop once again the producer.[2]